Question

Use the Gordon growth model formula to compute the price of a stock that will pay a $5 dividend per share next year and the dividend is expected to stay at $5 forever. Assume 5% cost of equity. The price of the stock today is $______

Answer 1

the price of the stock today is $100

Step-by-step explanation:

The computation of the price of the stock today is shown below:

Given that

D1 = 5

Growth Rate = 0%

Cost of Equity = 5%

Now the price of the stock today is

= D1 ÷ Cost of Equity

= $5 ÷ 5%

= $100

Hence, the price of the stock today is $100

We simply applied the above formula so that the correct value could come

And, the same is to be considered